Dunavant: Good cotton year ahead, prices cheap

The American cotton producer will be increasingly looking to world export markets — particularly China — for his future, Memphis cotton merchant Billy Dunavant says.

And in what he said would be his last speech at the yearly Beltwide Cotton Conferences, prior to his stepping down in June as chief executive officer of his worldwide empire, Dunavant Enterprises, he expressed “my extreme disappointment” in the working of the existing U.S. farm bill.

He told the producers, researchers, and other industry leaders attending the conferences at New Orleans, that “it seems the chance for maintaining a good Step 2 program is in jeopardy.” The program, he said, “is very necessary for our domestic textile industry and for making U.S. cotton competitive in the world market.”

Dunavant also expressed disappointment that “a cotton producer potentially makes more money when prices are low than when prices are high — there is nothing about that situation that makes any economic sense to me, and I don't blame the West Africans, the Brazilians, and the Australians for raising hell about our farm program.

“I sincerely want the American cotton producer to survive, and survive well — but not based on the farm program that we have today.”

Producers and ginners “must support the National Cotton Council if you are going to have a chance for the future,” Dunavant said, noting that he supports the organization and “the entire cotton industry, even though I don't agree with current farm policy. The council has been good to me and our company and has, on the whole, created a lot of good for the U.S. cotton industry.”

Company's first loss

Noting that last year marked “the first loss our company suffered in nearly 70 years,” he said, “I'm happy this isn't last season, because everything I believed was incorrect.”

The reason: China.

“They didn't meet my expectations, and this spring they had a severe credit crunch. We suffered many defaults by Chinese textile mills, and the worldwide textile industry also suffered many defaults. We're still working to try and get some of the problems resolved.”

This year, Dunavant said, “We're back on track — and will have a good year, even though cotton prices are cheap. Demand is very good and the U.S. and the world will produce record crops.”

Commenting on the continuing “sad demise of the U.S. textile industry,” he noted that consumption last year totaled 6.489 million bales and conditions seemed to have stabilized. But this season's consumption will be only 6.25 million bales, and “many people are talking about U.S. cotton consumption dropping below 5 million bales, although I do not see that as a reality in the next three years.”

Be that as it may, Dunavant said, “I don't see U.S. consumption going back to 7.5 million bales in the future,” forcing the American cotton producer to rely even more on the export market, particularly China. As I've said for years, China is the future, and their cotton consumption continues to grow.

Carryover concern

“I'm very worried about the level of the U.S. carryover at the end of this season,” he said. “I think it can threaten our farm program.” Dunavant said analysts are projecting a U.S. carryover of 7.9 million bales, he noted, and “if the government takes over 3 million to 4 million bales and catalogs it to sell in competition with next season's crop, then the whole program is in serious trouble.

“I think the taxpayers are not going to put up with this in the future, and I do not blame them.”

Looking at the supply/demand situation, Dunavant said the final U.S. crop for 2004 will be about 22.8 million bales, a record (and if Texas hadn't had a siege of bad weather in the fall, the final crop would have been over 23 million bales). “Weather, improved technology, and improved seed varieties created our monster crop last season, and it could happen again this season because Texas has a huge amount of subsoil moisture to draw on.”

Exports will total 12.2 million bales and, combined with domestic consumption, will result in a total offtake of 18.45 million bales.

“We've currently registered for export 8.75 million bales, so China really needs to be a player this year — and I think they will be.

“They still have a lot of cotton to buy after the Chinese new year and, hopefully, the U.S. will be a major exporter during this period.”

Carryover, he said, is expected to increase from last season's 3.5 million bales to a whopping 7.9 million bales, which he said is “too much.”

Dunavant said analysts are projecting U.S. production at 19.5 million bales for 2005. With domestic consumption of 6 million bales and exports rising to 14 million bales, carryover will decline slightly to 7.44 million bales — “still too much.”

World production is “also unbelievable,” he said, and should hit 115.5 million bales, with consumption at 104 million bales, a record. “Our numbers say world carryover will rise from 35.5 million bales to 46.9 million, or an increase of about 11.3 million bales in one year. It is hard for me to believe how dramatically the U.S. and world numbers have changed in 12 months.”

Production drop

For 2005-2006, Dunavant sees world production shrinking to 103.4 million bales and consumption rising to 106 million, with carryover dropping to 44.2 million, “which is still a big number.”

He said virtually every cotton producing country in the world “is enjoying a substantial increase” in production.

China, Mexico, and Turkey continue to be the three largest markets for U.S. cotton, he said, “and will remain so for the future.”

Brazil, Dunavant noted, is emerging as a major cotton producer and, even with lower prices, are expected to produce 5.25 million bales in 2005-06.

“Scanning the world, we've had major increases in production and consumption this season, but production has grown much faster, and world production will definitely decline next season because of price.”